MercoPress. South Atlantic News Agency

Kirchner in full command for “D” day

Argentine president Nestor Kirchner took full command of negotiations with the International Monetary Fund, IMF, as “D” day, March 9, when Argentina is expected to reimburse 3,1 billion US dollars, becomes closer.

The Argentine press reports that this Sunday Mr. Kirchner instructed the Central Bank to block Argentina's bank account in Washington, impeding the credit repayment, unless there's a favourable reply from the IMF.

The IMF Executive Board has been considering the second review of the three year current stand-by agreement with Argentina, but Mr. Kirchner has warned that unless there is a positive answer the country will nor repay the 3,1 billion US dollars credit to the IMF now under Acting Managing Director Anne Krueger, not precisely a admirer of how Argentina conducts itself.

This means that if Argentina does not deposit the 3,1 billion US dollars by next Tuesday 9, the country will have fallen in technical default with multilateral credit organizations. The 3,1 billion US dollars is equivalent of 20% of the country's international reserves and a positive reply from the IMF, according to the current accord means Argentina would receive the equivalent sum, after repayment.

In the fluid exchange between both sides, IMF last Friday put forward four conditions besides the fiscal ones needed for the approval of the review.

But Argentina considered them "unacceptable" and Finance Minister Roberto Lavagna was responsible for replying with four counter arguments. However until Sunday evening there had been no further contact with the IMF.

If Argentina effectively defaults, the Kirchner administration apparently has a "B" plan that basically contemplates stopping all transfers to the IMF but honouring all those bonds (Boden) in the market issued after December 2001 totalling 1,473 billion US dollars.

To ensure "B" plan the Kirchner administration will make all efforts to comply with the budget surplus and have the necessary funds for the Boden repayment; increase revenue and Central Bank international reserves; maximum austerity in budget outlays and strong public investment to keep the economy going and combat unemployment.

"If the IMF doesn't approve the review, they will have not honoured their side of the agreement", said Alberto Fernandez Chief cabinet minister, recalling that IMF experts informed the Executive Board that "Argentina surpassed the targets of the accord".

But the stumbling block are the private holders of defaulted sovereign bonds, (totalling over 80 billion US dollars) whom Argentina has offered to repay with a 75% face value cut. A position she has repeatedly said was definitive or linked to the country's long term (decades) sustainable growth.

The situation was quiet clear in the four IMF conflicting conditions wired to Argentina:

? Preferential treatment to the Global Committee of Bond Holders in the debt negotiation, including the written commitment to begin talks with this group. The Kirchner administration replied negatively since Argentina has detected 21 similar creditors' groupings and feels it's not fair to privilege one group over others.

? A debt rescheduling acceptability principle of 80%, but Argentina believes 50% is enough. However Minister Lavagna has said that the maximum could be 66%. That is, the plan becomes effective when 66% of creditors accept rescheduling conditions.

? IMF wants a retention clause included in the decree, --still to be signed--, creating the banks committee that will represent Argentina in negotiations with bond holders. The Kirchner administration believes that the "retention" clause impedes any bank from leaving until all negotiations are over making the country highly vulnerable to IMF pressures and demands to improve its offer.

? No final agreement with creditors should be signed before September. However the Kirchner administration wants the issue over by next June and free of the problem for September when Argentina must discuss further IMF accord conditions for 2005.

President Kirchner in his latest public statements has said that there are two Argentinas, the residual and the present one, emphasizing that "residual Argentina can't condition the expansion of the present Argentina", even if this means having to default?

However technical default becomes effective 180 days after non payment, sufficient time to reach an agreement that will satisfy Argentina's sustainable expansion objectives, so believes Mr. Kirchner, according to the Buenos Aires press.